Farm appraisals are not something most landowners think about often. An appraisal is important when you do need one — perhaps to settle an estate, establish a tax basis, obtain a loan or sell a property. But because those are not something most of us deal with very often, people may have misconceptions about what an appraisal will tell them. As a certified appraiser, I see these five misconceptions most often:

1. The appraisal should tell me that the farm’s value is in line with the last auction I attended. The reality is that information from auctions is good market data for appraisers to use, and recent events can indicate changes in market condition, making those recent events valuable data to be considered. However, relying too heavily on any one data point can be dangerous without support from additional sales. Single example auction results may sometimes deviate from the broader market, one way or another. Appraisers must consider the balance of all market evidence, including sales of private or listed properties, where sale prices are not widely known.

2. My brand-new farm building’s value should equal its cost to construct. The reality is that farm buildings are highly customized to suit the operation for which they were constructed. While it’s likely a smart business decision to construct that new machine shed or to build that grain leg, those were decisions to maintain value on expensive equipment or to improve harvest efficiency, not to add farm value. Even in the rare case that several potential buyers do have a need for the specific type and size of improvement that you just constructed, it likely is not in the ideal location for any other buyer’s farm operation.

So, while the cost of a recent construction is certainly a factor that should be considered in an appraisal, it is important to account for how the market views these improvements when you are talking about value instead of cost. The appraisal is designed to determine value, not cost.

3. A past appraisal to settle an estate can be used to tell me my collateral for a loan. The reality is that appraisers are required to specify, among other things, the intended use, the intended user and effective date of an appraisal report. When even one of these items changes, the appraiser must complete a new appraisal.

4. My appraisal should always equal my eventual selling price. If not, either my appraiser or my broker did something wrong. Not necessarily. One of the things that appraisers adjust for when comparing recent sales to a subject property is market conditions changing. This can continue after the appraisal and before the sale. Additionally, an appraisal for market value gives you an opinion of the most probable selling price between a typically motivated buyer and seller. There is always the possibility of some variation between what is probable (appraisal) and what occurs (selling price) even without changes in market conditions.

5. My appraisal will serve the same purpose as a building inspection or a survey. Again, not necessarily. The appraiser should certainly look at a property and note in the appraisal any apparent defects, taking reasonable care to describe accurately the subject property. However, a person should rely on qualified professionals for not only appraisal to establish value, but also building inspections and surveys, when those are necessary. One does not replace the other.

Hopefully, knowing these realities will help you be prepared for what an appraisal will tell you as a landowner.

Suess is an appraiser with Busey, Decatur, Ill., and a member of the Illinois Society of Professional Farm Managers and Rural Appraisers. Email questions to [email protected]. The opinions of this writer are not necessarily those of Farm Progress/Informa.